Co-packers carry their own insurance — but their limits, exclusions, and named-insured restrictions may leave your brand completely exposed. Here's the three-question test every founder should run before signing a co-packing agreement.
Before you sign with a co-packer, you need honest answers to three specific questions. Not the certificate of insurance — though you need that too. Not their reassurance that "yes, we're fully insured" — that phrase means nothing without the policy details behind it. Three concrete questions with verifiable answers that tell you whether their insurance actually covers you in the scenarios that actually happen.
Question one: Are you named as an additional insured on their policy — specifically, by name, in an endorsement attached to the policy? Not a blanket AI clause. Not a certificate notation. An actual endorsement that names your legal entity. This distinction matters because blanket AI clauses are often interpreted narrowly in claims, and a blanket clause that covers "anyone required by contract to be added as an insured" may not be enforced the same way as a specific named endorsement. Ask for the endorsement, not just the certificate.
Question two: What are their per-occurrence and aggregate limits, and are those limits shared with other brands they co-pack for? A co-packer with a $1M per-occurrence policy who co-manufactures for 20 brands has effectively allocated $50,000 of coverage per brand in an aggregate loss scenario — even though the certificate shows $1M. The aggregate limit erosion risk is real in a facility with multiple concurrent contamination claims. You need to know the total policy limits and how many other brands are sharing them.
Question three: Does their policy cover your brand's recall costs if contamination originates at their facility? This is the question that almost always has the wrong answer. Co-packer policies cover the co-packer's direct liability — their facility, their employees, their negligence. They do not cover your brand's recall costs, your lost gross profit, your re-manufacturing expenses, or your retailer remediation. The answer to this question should tell you that your own recall coverage — extended to cover co-packer-origin events — is non-negotiable.
Co-packers price their insurance as a cost of doing business. For a co-packer running $10M in annual production volume across multiple brands, a $1M per-occurrence / $2M aggregate GL policy is a reasonable operational expense that keeps their overhead manageable. That same policy, in the context of a single contamination event involving a brand with $5M in annual distribution, is wildly insufficient. The sizing mismatch is structural — co-packers aren't pricing their insurance to cover their customers' exposure. They're pricing it to cover their own.
The aggregate limit problem compounds over time. A co-packer's annual aggregate limit resets each policy year. But during any given policy year, multiple claims can erode the aggregate before your claim arrives. If the co-packer had a workers' compensation event in February, a property damage claim in April, and your product contamination event in September, the aggregate may already be significantly eroded by the time your claim enters the picture. You're not first in line — you're competing with every other claim event that year against a shared limit.
Small co-packers — the specialty, artisan, or regional co-manufacturers that many emerging CPG brands use because of their flexibility and minimum order requirements — are the most likely to be underinsured. A co-packer producing $3M in annual volume may carry $500,000 per-occurrence coverage. That's the budget they can afford. It's not sized for the liability they create for brands who distribute nationally. Emerging brands are often most attracted to these smaller operators and most exposed to their coverage gaps simultaneously.
Even large, well-capitalized co-packers carry policies that may be insufficient for a catastrophic recall scenario. A recall that pulls product from 3,000 retail locations, triggers FDA reporting, and requires crisis communications and re-manufacturing can easily cost $1.5M–$3M for a mid-size brand. If the co-packer's policy has a $1M per-occurrence limit and covers only their direct liability (not your brand's recall costs), the gap is fundamental — and no amount of additional insured endorsement language closes it.
The named insured on a policy is the entity that the policy is designed to protect — in a co-packer's policy, that's the co-packer. The named insured receives the full benefit of the policy: defense, indemnification, coverage for all claim scenarios described in the policy. The additional insured is a secondary party added to extend the policy's protection in a limited way — typically for claims arising from the named insured's operations that also involve the additional insured.
The "additional insured" status your brand gets on a co-packer's policy is fundamentally limited. It covers you for claims where the co-packer's operations are the proximate cause and a third party is suing both of you. It does not cover your independent business decisions, your own recall costs, your revenue loss, or your retailer remediation expenses. The AI coverage is a narrow slice of what your brand actually needs — and treating it as comprehensive coverage is one of the most dangerous assumptions CPG founders make about their co-packer relationships.
There's also a practical enforcement issue with blanket AI endorsements. Many co-packer policies use blanket AI language that says something like "any person or organization that requires you to add them as an additional insured." In a claim scenario, carriers sometimes dispute whether the contract language is sufficient to trigger the blanket endorsement, particularly if the contract doesn't use the exact triggering language the endorsement requires. A specific named AI endorsement eliminates this dispute entirely — the carrier can't argue about whether you're covered because your name is on the endorsement. Getting a named endorsement is worth the two to four weeks it takes to execute.
Closing the co-packer coverage gap requires a layered approach. Layer one is your own product recall coverage — sized appropriately for your distribution footprint, with a voluntary recall trigger (not just government-mandated), and with explicit language covering contamination events originating at co-manufacturers. This is your primary protection, and it needs to be in place before you sign with any co-packer.
Layer two is a vendor liability extension on your product liability policy. This extends your policy's coverage to claims arising from vendors who manufacture products on your behalf — it's your policy covering you for co-packer-origin events, separate from any coverage you have under the co-packer's policy. The premium for this extension is typically modest for early-stage brands (often $500–$1,500 annually), and it closes the gap that the AI endorsement doesn't fill. Combined with recall coverage, it creates a defensible position for almost any co-packer contamination scenario.
Layer three is contract language. A co-packing agreement that requires the co-packer to maintain specific minimum insurance limits, notify you of policy cancellations or material changes, provide updated COIs annually, and assign recall notification responsibilities with specific time windows gives you contractual remedies in addition to insurance remedies. The contract doesn't pay the bill during the recall — your insurance does that. But it strengthens your indemnification position afterward and creates accountability for the co-packer's compliance obligations going forward. Treat the contract and the insurance as complementary tools, not alternatives.